May 22 (Bloomberg) -- The resolution of Detroit’s record
$18 billion bankruptcy won’t be decided just in a hushed
courtroom, but buffeted by advertisements designed to sway
Michigan lawmakers and dissected at pensioners’ kitchen tables.

A group funded by the billionaire Koch brothers will attack
legislators who support a $195 million state contribution toward
Emergency Manager Kevyn Orr’s plan to settle the debt. The plan
is also subject to direct democracy: About 30,000 retirees and
employees are among creditors deciding how to vote on a nine-page, customized ballot that lets them choose between small or
big pension cuts.

“There’s a gun stuck to your head,” Roderick Veil, a
retired bus-system supervisor, said at his Detroit house. “You
either take plan A, which is so unfair, or you take plan B,
which is absolutely absurd.”

Orr’s plan would wipe out some debt and spend $1.5 billion
to improve services in a city where police drive 10-year-old
cars, 70,000 vacant buildings scar neighborhoods and buses
sometimes don’t show up. With creditor ballots due July 11 and
bills to release state money wending through the legislature,
the case may be decided by fear, anger or appeals to Detroit’s
greater good.

Public Arena

U.S. Bankruptcy Judge Steven Rhodes has allowed 110,000
creditors to vote on the plan, including the retirees. The large
number of ballots makes Detroit’s case unique, said lawyer
Michael Sweet of Fox Rothschild LLP in San Francisco, who’s been
involved in other U.S. municipal bankruptcies. The deal also
relies on 145 members of the Republican-dominated legislature,
which must approve the state’s $195 million stake.

Yesterday, bills to enable the payment were passed
unanimously by a House of Representatives committee. The going
may get harder.

Americans for Prosperity, funded by energy executives
Charles and David Koch, is planning an election-year campaign
against members who vote for the deal. The money is needed to
unleash another $466 million from foundations and the Detroit
Institute of Arts to protect the city’s masterpieces and ease
pension cuts. The pledges are the result of bankruptcy court
mediation.

Detroit shouldn’t take more tax money to pay debts, and
should sell its art instead, said Scott Hagerstrom, director of
the Americans for Prosperity Michigan chapter in Lansing. The
organization is conducting an online campaign and plans mailers
and phone calls, Hagerstrom said.

Detroit’s Treasures

“Legislators advertise themselves as being for limited
government and economic liberty,” Hagerstrom said. “And they
come to Lansing and turn around and vote for more money for
Detroit on top of the more money it already receives. The
citizens back home need to know.”

Orr and the judge have resisted attempts to strip the city
of its art, which includes paintings by van Gogh, Picasso,
Matisse and Rembrandt. New York-based Christie’s Inc. appraised
the works bought with municipal money as worth between $454
million and $867 million.

Orr rejected a creditor offer to sell or loan the
collection for $2 billion. Poly International, an auction house
owned by the Chinese government, sought to buy Chinese works for
$1 billion. Rhodes on May 15 denied the creditors’ request to
remove as many as 3,000 pieces to assess them.

The AFP campaign “could have an impact,” said Republican
Representative John Walsh, who is chairman of the committee that
approved the state payment that would protect the works.

“It’s not a pleasant place to be, but do you want it to
just go down the tank?” Walsh said. “That’s not a viable
option.”

Individual Decisions

Even if lawmakers are swayed, creditors must come on board.

Orr reached debt-reduction agreements with some
bondholders, retiree groups, employees and the city’s two
pensions. Under the plan, retired police and firefighters would
receive regular checks, though cost-of-living increases would be
halved. General employees would have benefits reduced by 4.5
percent and lose cost-of-living allowances.

If creditors reject the plan, police and firefighter
pensions would be cut 6 percent, and general-retiree pensions
would drop 26 percent.

The ballots detail how much each former worker would lose.
Included are 35 pages explaining the plan and a CD-ROM with more
information.

Differing Directives

American Federation of State, County and Municipal
Employees Council 25, which represents about 2,000 worker and
3,000 retirees, has urged members to postpone voting because of
questions about its ability to legally challenge cuts.

Don Taylor, president of the Retired Detroit Police and
Fire Fighters Association, said most of his members will support
the plan.

“It’s much worse if you turn it down,” he said in an
interview. “Nobody knows what’s going to happen then.”

Veil, who was an Afscme member, fears he could lose his
home if his $2,837 monthly pension is cut. He canceled a June
vacation for his 60th birthday because of financial uncertainty.
Veil said he pays $600 a month for health insurance instead of
$125 he paid before a city-paid plan ended this year, plus
higher co-pays and deductibles.

“We fulfilled our part of the promise,” Veil said. “We
did everything we were asked to do. We supported the city, we
bought homes in the city, paid our taxes. We thought our
pensions were protected.

‘‘As usual, when it comes down to it, the workers have to
pay the toll.’’

No Recourse

Orr’s plan includes $57 million to prevent retirees from
falling below 135 percent of the federal poverty level, an
income of $15,754 for a single person. Detroit has the highest
percentage of residents in poverty -- 42.3 percent -- among U.S.
cities with populations of 100,000 or more, according to data
compiled by Bloomberg. Twenty-one percent of Detroit seniors
live in poverty.

Gina Thompson, 56, lost her municipal job after 26 years as
a counselor and now receives an $831 monthly pension. That would
drop to $668 a month if creditors approve Orr’s plan, or to $481
if it’s rejected.

‘‘I’m still voting no because it says there’s no way for us
to sue later,” said Thompson.

“It’s important to have buy-in,” Spiotto said in a phone
interview. “Since a good number of employees and retirees live
in Detroit, it’s important to get their buy-in. Otherwise, where
is the recovery plan going?”